Tag: independent financial advisers

Where there’s a will there’s a new way of witnessing it

The law covering how a will can be witnessed in England and Wales is just about to be updated to include the virtual electronic witnessing of wills, in certain circumstances.

This is as a direct result of the lockdown caused by Covid-19. Backdated to January 2020, the new law allows anyone who has been isolating or shielding, and who has access to video software such as Zoom or FaceTime, to get their signature on their will remotely witnessed online. 

The original Wills Act of 1837 stipulates that wills need to be witnessed in the ‘presence of’ at least two witnesses. This has proved to be almost impossible to do properly during lockdown, with many solicitors not having access to offices in order to arrange suitable appointments to witness signatures.

This recent amendment means that the established case law, that allows a witness to observe the signing through a window or door as long as they are in clear view, now extends to live video streaming, just as long as all parties can clearly see and hear what is taking place. 

Under the Electronic Communications Act 2000, a statutory instrument will be enacted in September 2020 stating that the existing phrase ‘in the presence of’ now means either in the physical presence of, or in the virtual presence of (via video link).

Virtually starting the year again

The amendment to the law will be backdated to 31 January 2020, in order that it covers all wills made during the pandemic. It will also be in place up to 31 January 2022, or longer if it is felt necessary to do so. 

However, the Government are also reserving the option to shorten the term too. Once the law reverts back to traditional forms of witnessing, then that will once again have to be performed by someone who is physically (and not virtually) present. 

A last resort

As welcome as it is, this change in the law should only be viewed as a last resort. With remote witnessing being used only once all other physical witnessing options have been explored and found to be impossible. 

Where remote witnessing does take place, then strict precautions must be in place to ensure that fraud and coercion are not present. The witnesses must understand what it is that they are observing and they will not be able to ‘witness’ a pre-recorded video of a will signing.

The Ministry of Justice states that testators (those making a will), when getting it witnessed remotely should make a formal statement such as “I (first name & surname) wish to make a will of my own free will and sign it here before these witnesses, who are witnessing me doing this remotely”

All signatures must all so be ‘wet’ as remote electronic signatures are unacceptable.

If possible, the video stream should also be recorded and kept as a record of events.

Socially distanced alternatives to video technology

As The Ministry of Justice have stated that ‘people must continue to arrange physical witnessing of wills where it is safe to do so’. With that in mind, they suggest that that witnessing wills in the following ways are an acceptable execution of the legal requirement during the pandemic, provided that the testator and witness each have a clear line of site:   

  • Witness through a window, or open door of a house or vehicle
  • Witness from a corridor or from an adjacent room into another room through an open door
  • Witness outdoors, from a short distance.

All wills still need to be signed by two witnesses who are not beneficiaries and please keep in mind that electronic signatures are unacceptable.

The longer-term future

The Government has committed to considering ‘wider reforms to the law on making wills’. In the meantime this concession regarding the witnessing of wills during the restrictions imposed by the pandemic should go someway to helping relieve the stress associated with creating or amending bequeathments during lockdown.

In Scotland the law has also been temporarily amended to allow a lawyer to act as a witness via a video conference, just as long as they are not appointed as an executor, either directly or through a trust.

As always, we at Bridgewater Financial Services are here to provide expert and independent advice on any questions you have regarding making a will, Inheritance Tax Planning or any other financial enquiries you may have.

You can also see full the guidance on making wills via video conferencing in England and Wales by visiting GOV.UK. 

 

Your SSAS pension can provide for your family AND future generations too

You really are never to young to join a SSAS
Your small, self-administered pension scheme (SSAS) doesn’t just provide death and retirement benefits for its members in a tax efficient way – It can do way more for you and your family. Due to their restriction of having no more than 11 members, SSAS schemes are often favoured by smaller businesses where the company directors, family members and senior executives are the beneficiaries. Especially as they allow for members of the family who don’t work for the company to also be included.

Not only that, but a SSAS pension is an asset that can be passed down the family through the generations. Best of all, as a pension it’s legally protected from personal or company creditors so it’s a safe place for the long-term storage of assets.

The big benefit to your family
As investments are held in the names of all of the SSAS trustees, this common ownership means that each member of the SSAS holds a specific portion of the SSAS’s assets. This makes ownership of assets like properties far cheaper and simpler to deal with than they would be if the asset were shared between three or more self-invested pensions (SIPP). The other big benefit of a SSAS, is that individuals can choose their own investments, which is really handy if the business is involved in property or land. Also, where individuals are saving in order to invest in property or land, a SSAS can really help fulfil that ambition (see my previous blog on SSAS property purchase).

What happens when a member retires?
Once a member of the SSAS retires, they have the same options as any other member of a defined contribution pension scheme. This means that you can secure a guaranteed income, take an income from the fund or a combination of the two. If the SSAS is invested in property that is generating and income, this can effectively be remitted out to the member to support their retirement.

Flexibility when it comes to your retirement day
A SSAS allows entrepreneurs to delay the time that they start retirement, as they often retire later than those in employment. It also allows for early retirement from the age of 55 years. Your SSAS will even let you carry on working part-time, receiving some pension and some income at the same time.

Tax Efficient Death Benefits
SSAS benefits payable on death are not normally subject to inheritance tax. If the scheme member dies before the age of 75, their family members can inherit their fund and take tax free withdrawals for life. After the age of 75, payments are subject to income tax at the beneficiary’s normal income tax rate. The fund can be passed down through the generations as long as it lasts. Unlike a conventional non-pension trust, there is no limitation on how long the trust can last. So the pension fund could be providing valuable benefits to multiple generations of the family of the original members. Beneficiaries are immediately entitled to draw benefits and they do not need to wait until they are at least 55.

Other benefits of SSAS to family businesses
Your SSAS can also be a great way to increase your purchasing power, if you’re looking to accrue assets for the future. Please see my previous blogs on using your SSAS to borrow funds for property and stock purchases.

Get it right from day one
With something as complicated as a SSAS, it’s vitally important that you get the right kind of professional advice from a qualified and expert financial adviser who knows this area well. The wrong advice, or no advice at all, could result in significant tax penalties.

As always, we at Bridgewater Financial Services are here to provide expert and independent advice on any questions you have regarding A SSAS pension, or any other financial enquiries you may have.

Stay safe

A SSAS could be the answer to cash flow needs

SSAS – what it is and can you transfer to one today?

A SSAS is a small, self-administered pension schemes (SSAS) for up to 12 members. 

Right now you can transfer any existing pension into a SSAS, where the combined funds can be used to borrow money, up to 50% of the fund value (if needed) to buy back premises owned by the company, releasing funds to clear other debts or to finance projects (e.g. new business opportunities that have arisen out of the current situation as businesses adapt to new areas). With many companies using the loanback facility to get access to extra funds for pressing cash flow needs. 

This loanback facility that is incorporated into all SSAS has been responsible for a dramatic increase in SASS activity over the past few weeks.

According to The Whitehall Group, one of the leading SSAS providers, reported SSAS registrations increasing eightfold in just the first ten days of April 2020, compared to figures for January earlier this year. 

It’s the loanback facility that is so appealing

With borrowing rates for a SSAS at incredibly low levels, companies who have assets or properties in their SSAS are utilising them as security to borrow against, as they realise much needed cash flow for their companies. 

With more and more business owners realising that their own SSAS could provide a low-cost lifeline to keep their businesses afloat during the Covid-19 economic crisis. 

How your SASS could save your business

SSAS can work for your business in many different ways. It can provide loan finance back to the business of up to 50% of the total amount of the net market value of the business SSAS scheme’s assets, as well as 50% of the total amount of cash held.

That kind of cash injection, borrowed against rock-bottom interest rates, is providing the financial lifeline that many businesses so desperately need. With the number of loans reported having quadrupled in April, compared to January’s activity. 

A word of caution

This sudden increase in SSAS activity is a reversal of recent year’s trends, which saw the popularity of SSAS schemes decline, as they are not regulated under the Financial Conduct Authority rules and protections. 

As such a SSAS should be considered carefully and regard should be paid to the wider aspects of the scheme. Your SSAS shouldn’t just been viewed as a low cost route to answering any current and pressing borrowing needs. In fact, any loans made in a SSAS scheme should always be to ensure that the company doesn’t just survive, but also goes onto grow in the future. 

There is also an obligation by the trustees of the SSAS scheme that they do not risk pension money that is intended for retirement. Therefore proper consideration should always be given to determining if the loanback is a good investment for the pension scheme to make. 

Done properly it could be a cash flow lifeline

Although loanbacks are currently a very enticing selling point, any SSAS must be executed properly, or it runs the risk of its members losing out. HM Revenue & Customs have stated that any loans made to the sponsoring employer will qualify as an authorised payment if their key stipulations are adhered to, including:

  • A five year minimum term
  • Interest rates must be at least 1% above the current base rate
  • The loans must not exceed 50% of the SSAS’ net assets.

It’s important that trustees follow procedure and document the loanback correctly. Failure to ensure that the correct securities are in place could mean that the loan will not qualify as a loan. Instead it becomes viewed as an unauthorised payment and will incur tax charges. 

If you are in any doubts regarding the trustees obligations, or how to administer the loanback correctly talk to professional financial advisers like us, to ensure you don’t fall into any of the many pitfalls that can await unsuspecting trustees.

If you need the SSAS lifeline – act now 

The world seems full of endless financial delays during this Covid-19 downturn. Banks are taking longer to process loan applications, charging increased interest rates and asking for personal guarantees.

However applying to switch an existing pension to SSAS, or to set a SSAS up from scratch also takes time. HMRC have to accept and register a new SSAS before any money can be transferred or paid in. So the sooner you start the process, the sooner you can take advantage of the unique facilities of your SSAS. 

Remember – we’re always happy to help

As always, were here to help, whenever you need us. If you do have any further questions regarding anything I’ve raised in this blog, then please get in touch with us at Bridgewater Financial Services, where we will be delighted to help guide you through your individual options and strategies.

20-20 vision for your finances

Happy 2020!

We’ve just stepped into a new decade and all the surprises that brings. But as we set off on the next chapter, I always think that the exciting thing is the uncertainty. Yes we know some things are definitely going to happen, like most of our New Year’s resolutions will fall by the wayside, the UK will leave the EU and that we’ll all get older and hopefully a little wiser. 

However when it comes to the markets, we can’t know for sure how they are likely to impact our personal finances. Having said that, we do have the next best thing available to us; our ability to review and amend!

Whatever your long-term plans may be, now is the time to review how the last year or two has performed for you and to put yourself in the right position to take full advantage of the financial opportunities now available. A review of your Savings, Estate Planning, Insurance Covers, Investments and Pensions now will allow you to make any changes and tweaks in your finances in order to make sure that you reach the end of the 2020’s in the financial position that you set out to achieve.

Now’s the perfect time to inspect an ISA

If you don’t currently have an ISA in your portfolio, then can I suggest that you add one to your list of things to consider this year.

It’s a great tax-efficient way of approaching investments, as your returns are free of income and capital gains tax. You can invest in an ISA up to a limit of £20,000 of which £4,000 can be paid into a LISA (for those eligible). 

As the annual deadline for ISA’s is 5 April 2020, this means that you potentially have two bites of the cherry available to you throughout 2020. By that I mean that you can currently take advantage of the ISA Tax-free opportunity for the remaining of the tax year, plus you can then do the same again on 6 April 2020. Please don’t leave it too late though, as some providers take several working days to process new ISAs, so leaving things until the beginning of April may mean you miss the closing deadline.

Take a look at a LPA And Will

The chances are that you could be amongst over 50% of the UK adults, including many in their 50’s and 60’s, who don’t currently have a Will in place. If that’s the case, could I respectfully suggest that writing one really should be high on your financial agenda for 2020. 

Whilst you may already have a Will in place, or high on your ‘To Do’ list, can I also prompt you to consider Lasting Power of Attorney (LPA), as incapacity often strikes without warning. Which means that sorting out a LPA can save your estate and it’s beneficiaries considerable costs and avoid unnecessary and lengthy delays.

If this all sounds a bit daunting, please be assured that putting Will and a LPA in place is nowhere near as difficult or costly as many people think. If you are unsure regarding whom to approach to best sort these things out, then start by contacting us. We can easily arrange Wills and LPAs through our sister company Bridgewater Wealth Protection www.bridgewaterwp.com

If you do already have a Will or LPA, then please take this reminder as an opportunity to review it. Checking that it is up to date and that it reflects your current wishes.

Improve your Insurance

Even if you have insurance covers in place, now is an opportune time to review things. Our advice would be to just make sure that each plan covers you for everything you need and that the costs are correct. Your circumstances may well have changed since you took any cover out. If that’s the case, then it’s critical that you ensure you are covered for all you require and that there are no plans available that could provide better cover and possibly a lower premium too.

The wrong product can end up costing you a great deal of unnecessary expense and stress, so please take the time to review and compare cover options.

Investigate your Investments

After a bumpy year (The Queen’s words, not mine) in politics and the markets, now is an excellent time to take stock and to just check that your investment strategy is on course to achieve your goals. 

An excellent starting point would be the latest report regarding your mutual funds. There you can check to make sure that they still match your appetite for risk and that you are also happy with where your money is being invested.


A good tip, for when you consider your investments, especially when thinking about your exposure to risk, is to always include your pension, ISA’s funds and stocks together. Do this even when the funds are spread around different accounts and investment products, that way you will get a better feel for your overall portfolio.

Peer into your pension

Lastly and certainly not least, is your pension. 

Your pension is one of the most valuable assets you can have, yet it often gets overlooked; and I feel that more often than not, we don’t give pensions the attention that they deserve. 

Regular reviews of your Pension makes excellent financial sense, especially as legislation has changed massively in the last few years. So if you haven’t recently reviewed your pension position, then now would be a very good moment to do so.

During your review, ask yourself the following questions:

• Are the level of your contributions correct? Too little could leave you
wanting in retirement and too much could create problems with your
Reduced Lifetime Allowance
• Does the strategy still fit with your time horizon, changes in your current
situation or attitudes to your investment risk?
• Is your pension scheme up to date and able to take advantage of the new
pension freedoms, or is it an older scheme that can’t benefit?
• Does your pension fit with your retirement and estate planning?
• If your pension is a Final Salary Scheme, then with the increases in
transfer values, is it worth requesting a transfer value and restructuring
the pension?

Although this isn’t every question you should ask, they are certainly questions you should know the answers to, if you want to ensure that your pension is in the best place it can be.

We’re here to help whenever you need us

Although no one can see into the future, having a close look at your finances now is the difference between approaching 2020 with a clear financial strategy or setting yourself up for a cry of ‘I should have gone to Specsavers’ later in the year! 

I hope that this blog goes someway to starting the new financial year off on the right foot. If however there is something specific you would like to talk to us about regarding your plans, then please get in touch with us at Bridgewater Financial Services, where we will be delighted to help guide you through your individual options and strategies.

Wishing you all a Happy and Prosperous 2020.

Now’s not the time to play ‘financial chicken’

Sometimes it’s good to be the odd one out!

The election is over, now let the dust settle

Finally we have the outcome and a new strong direction for the UK, with Brexit now happening in the way that Boris Johnson has planned. There will be international reactions to the new political landscape and the markets will no doubt respond too. In fact, at the moment the exit poll was announced Sterling rose significantly; and we can expect to see further fluctuations across the board in the UK markets. Which is why, whatever way you voted, I’d like to just focus your attention on your finances and what you should and shouldn’t do next. 

Psychologists tell us that we have been hardwired over the last 100,000 years to behave the way we do. With most of these behaviors being based on primal instincts that determine our survival as individuals and as a species. So in many ways, these behaviors are so deep routed at a biological level, we don’t stand much of a chance of avoiding them as individuals. That is of course, if they are not pointed out and guarded against.

The modern world really is an extremely new phenomenon, especially when we look at it through the lens of evolution. The vast interconnections and the exchange of up to the minute information and ideas are truly phenomenal. So have some sympathy for that part of your brain that has been hardwired to live in a world that lasted for around 98,000 years and now no longer exists; and never doubt the influence it still has over you and your finances!

Here’s how a caveman still influences your decision-making

We all carry around these hardwired modes of behaviour; and one that may come to the forefront in the next couple of months is what psychologists call ‘The Bandwagon Effect’

There is an incredibly powerful compulsion to follow the herd. It’s been bred into us at the very base level of our existence; and in uncertain and stressful times, it comes right to the front of our thinking. That’s because for tens of thousands of years, belonging to and conforming to a group was a very successful strategy for survival. Staying with the group is far better for survival than going it alone. Hence, over thousands and thousands of years the desire to follow the herd has been bread into all of us over time – and is now a fundamental human instinct. 

How many times have you fallen for the appeal of a busy mediocre restaurant verses a fabulous empty one saying “Let’s eat here, it looks full so it must be good”?.. It’s the Bandwagon Effect in full swing.

When the wheels come off and that impacts your finances

An excellent and extreme example of The Bandwagon Effect causing financial problems was laid out in the dramatic rise and crash of Bitcoin. That particular bandwagon was one that people couldn’t get on fast enough, despite common sense telling them that it wouldn’t last. For the majority of ordinary investors, they bought Bitcoin at the height of its value only to watch the value plummet. 

Whilst Bitcoin is an extreme example, I use it to illustrate the Bandwagon’s grip on sane minds. So my words of caution are aimed at the post-election markets in general, over the short-term.

March to the beat of your own drum

Over the next few weeks or months the markets are going to react to the first quarter of the new Government. That may well create fluctuations and the odd perceived stampede toward the Bandwagons. My advice would be to bide your time and wait. 


Think about theold adage ‘If you see a bandwagon, it’s already too late’

Markets hate uncertainty and have been reacting to the political deadlock that we have been living with through the post Brexit Referendum. 

However, now is the time for the markets to settle again. It’s certainly not the time to take peer-pressured decisions on investment acquisitions or disposals. If you spot an opportunity whose value is created by a sudden influx or departure of groups of investors, please think again. Remember that bandwagons often artificially alter a market for the short term. So get some impartial advice and consider your options calmly and pragmatically. Please bear in mind that the powerful drives to follow the herd have been with us for over 100,000 years and have served us incredibly well. However, they are your worst enemy when it comes to the financial markets.

Unleash your inner Spock!

I’m not sure if there is such a thing as The Bandwagon Effect on Vulcan. However, I would say that approaching the financial markets with a Vulcan like emotionless clarity, and a determination not to get carried along with the crowd, is the only way to overcoming the possible pitfalls of market hysteria. 

The markets are probably ahead of you anyway

Most of the serious financial markets have had any political upheavals already costed into them. So what you will be witnessing in any fluctuations is merely a settling of the market.

Also, don’t forget that the markets are now interlinked throughout the world. So, whilst the UK General Election may seem incredibly important to us, to the international markets it’s just a small bump in a very long and well-established road – and nowhere near as significant to performance than many of us believe.

Don’t just take our word for it though – talk to us too!

If you have any questions or worries regarding the current or future financial and investment markets, then pleasecontact us at Bridgewater Financial Services where we will be delighted to help guide you through your individual options and strategies.

Life Assurance

Here’s a lovely Life Assurance idea..

..how about the taxman pays around half of yours?

If you take out a Relevant Life Plan, then he (or she) will.
If you want to provide yourself and your employees with an individual death in service benefit that pays a lump sum if the individual insured dies or is diagnosed with a terminal illness, thena Relevant Life Plan (RLP) is something you should seriously consider.

Is it for you and if not why not?
If you’re an employer, looking to give the peace of mind that Death in Service cover can provide, but you don’t have enough employees to justify a group scheme, then a RLP could be just what you’ve been looking for.

If you’re a Director wanting your own individual Death in Service cover, without including your employees, then a RLP could be for you.

If you’re a high earning individual where Death in Service isn’t currently a part of your lifetime allowance of £1,055,000 (2019-2020), then considering an RLP could prove to be advantageous.

However, if your business is a sole trader, equity partnership or equity members of a Limited Liability Partnership, and doesn’t have an employer/employee relationship, then unfortunately a RLP won’t be suitable.

How does the tax saving work?
Almost all company directors who have some life assurance are paying the premiums personally. This usually this means that they are paying premiums out of pre-taxed income or they’re paying through their company and attracting a P11D benefit-in-kind penalty. However a RLP is paid directly by the company, with premiums allowable as a business expense. This obviously means that Corporation Tax Relief can be claimed and no Employer’s National Insurance is payable either. But that’s not all, the RLP policy does not count as a benefit in kind, so it doesn’t attract Income Tax or National Insurance payments either.

For example, the real cost of a £200 per month insurance policy, to a high rate taxpayer, after tax and NI is around £392 gross. By taking out a RLP, and paying premiums through the company, avoiding the income tax and NI; the remaining £192 produces an extra £98pm of net income available to the high rate taxpayer, whilst providing the same cover. This is a real saving of 49% and for a basic rate taxpayer; the saving is around 36%.

So why isn’t everyone doing this? 
It seems like a no-brainer that anyone who falls into the category of qualifying for a RLP would immediately switch to one. So why aren’t they more popular?
The simple answer is most company directors and, I’m sad to say, their accountants simply haven’t heard of a Relevant Life Plan.

That’s possibly because when the RLP was originally launched, it was only offered by one provider and the message didn’t really get out to a wide audience. Fortunately for you, you read my blogs and I’m here to tell you all about it

Who can you talk to regarding a Relevant Life Plan?
Not so long ago there was only one company who spotted the opportunity to offer a RLP. Their unique approach took advantage of pension simplifications, which meant that due to the way that life insurance was set up under trust, and because the limited company paid the premiums, no benefit in kind issues impacted upon the director or employee.

Understandably other providers held back from entering the RLP market, whilst they waited to ensure that the legislation that the RLP took advantage of was robust and unchallenged. Happily, now that the principles have gone unchallenged, a further half a dozen or so big name providers have now also entered the RLP marketplace, which helps ensure that premiums remain low.

Let’s have a quick look under the covers
The first question people generally want answering is, how much cover can I have?

Just like any other Death in Service policies, the sum assured with a Relevant Life Policy is based upon a multiple of the insured annual remuneration. As a director, remuneration is based upon salary with the addition of dividends and the addition of any bonuses.

Depending upon the provider you pick for the RLP, the multiples may vary depending upon the age of the director being insured. Usually though, you can expect the range to be anything from 10 to 25 times remuneration. So get some independent expert financial advice, before picking your RLP provider.

Get the right advice
As always, if you have any questions regarding your current or future financial situation, especially regarding a Relevant Life Policy and which provider best suits your individual needs, then please contact us at Bridgewater Financial Services where we will be delighted to help guide you through your individual options and strategies.

Smart thinking AIMed to reduce your inheritance task exposure

An IHT opportunity you may not know about

As the game of cat and mouse continues with the government and taxpayers, the scope of tax planning opportunities that are legitimately open for high earners has been steadily reducing in number and variety.

The latest industry figures show that taxpayers paid £5.3bn in inheritance tax in the last year to February 2018. That’s a rise from the £4.7bn paid in 2016/17. UHY Hacker Young, have suggested that there is a real scope to use Business Relief (BR) to further lessen Inheritance Tax (IHT) bills to HMRC. With forecasts predicting that the value of BR to have risen 8% in 2017/18, from £655m in 2016/17.

Investing in the Alternative Investment Market (AIM), with an Inheritance Tax (IHT) Plan,enables qualifying taxpayers to reduce IHT bills, through investments made in unlisted companies and other business assets.Not only that, but both investors and the government seem to like what’s on offer; as it can produce healthy savings and returns, as well as contributing to the wider economy and create jobs and growth.

An alternative to a Trust that’s worth considering

When you invest in the AIM market, most companies are eligible for Business Relief (BR); and, if held for at least two years, the shares are classed as business assets, so are completely free from IHT.

An AIM Portfolio IHT Plan can also provide you with greater flexibility than a trust and can also be less expensive and time-consuming to set up.

Unlike a Trust, you don’t have to wait for seven years in order for your assets to escape the remit of IHT, as your AIM IHT Plan qualifies for tax relief after just two years as opposed to seven – provided the AIM shares continue to be held thereafter.

Another benefit over a Trust, is that you no longer run the risk of losing access to your investments, as you retain control of your assets at all times. You are also free to increase contributions in the future, as well as possibly earning equity related returns on your AIMs investments.

You can even utilize an existing, or new, (ISA) 

You can either transfer an existing ISA, or set one up in your AIM IHT Plan. Which has the double advantage of the holdings in the AIM companies qualifying for BR. You’ll also be exempt from any income tax on dividends and capital gains tax on profitable disposals. 

How are savings on Inheritance Tax achieved? 

Providing you have held the shares for over two years then, under the current taxation rules, there us unlimited exemption from IHT on all shares that qualify for BR held by you when you pass away.  

Pretty much all of the companies traded on AIM, with the exception of those principally engaged in property or investment activities, qualify for BR. Which means that, under the current legislation, all of the applicable shares in your AIM portfolio will be seen to be business assets, which means that they are exempt from IHT if owned for more than two years.

As the IHT exemption is only available on the qualifying shares, held at the point of death, any AIM IHT Plan should be viewed as a medium to long-term investment, with a view to keeping it for a minimum of five years. 

Upon your death, your portfolio can be sold, or transferred to a spouse, without attracting IHT. 

Is an AIM IHT Plan right for you? 

If you’re concerned that a large portion of your wealth may not get to the people you wish to leave it to, because of the likely IHT charges to be made on your estate, then the AIM IHT Plan could be just what you are looking for.

As it provides you with an investment opportunity that could not only deliver a strong performance, but can also reduce your IHT liability. 

If you are considering investing in an AIM IHT Plan, then it’s important that you get the right kind of independent advice. As it should always be viewed as a long-term investment option that carries a slightly higher risk than other investments and my not necessarily be the best option for your immediate requirements.

The usual minimum investment you should consider with an AIM IHT Plan is £100,000. An additional contribution of a minimum of £25,000, or the full annual ISA contribution, can be made at any time after you start the plan.

A cautionary word about the Plan

Firstly, it’s important to appreciate that the current rate of IHT as well as the value of this option regarding IHT savings and the exemption afforded by an AIM IHT Plan could all change in the future.  

Having said that, BR has been around for a number of years and under various different Governments, and doesn’t appear to be drawing attention in any of the current manifestoes. 

It is important to recognise the long-term, and higher risk, aspect of the plan. As I would suggest that you especially consider the following points, in order to ascertain whether this type of investment fits your personal investment profile:

  • As most AIM shares tend to be illiquid, it might be more difficult to sell them. Also obtaining reliable information regarding their value and the risks they are exposed too can also more difficult to find.
  • Any AIM company can revert to private status. This would mean that shares may become impossible to trade and the value and protection offered by AIM would end. 
  • Like the FTSE, past performance is no guide to the future and the value of shares purchased on AIM (and income received) may go down as well as up; and you may not get back your full investment
  • Not all investments into the AIM market qualify for BR, plus the amount of tax relief available may change at any time. 

Need to know more?
As always, if you have any questions regarding your current or future financial situation, especially around AIM IHT Plans, then please contact us at Bridgewater Financial Services where we will be delighted to help guide you through your individual options and strategies.

Tax Year End Planning Checklist

The end of the tax year is approaching again; therefore it’s time to think about maximising allowances, minimising taxes and taking all the other steps to ensure your tax position will be as favourable as possible going forward. Although there are still almost two months left, it’s better to start now rather than leave it all to the last days, for some of the necessary steps can take some time to process.

When going through the checklist below, you may find this page useful. It contains all the key thresholds, rates and allowances for 2015-16 as well as 2016-17.

Income Tax and National Insurance

If possible, delaying an invoice (if you are self employed), salary, bonus or dividend payment (if you have a company) until 6 April can save, or defer, a considerable amount of taxes. Company owners should also find the right mix of salary and dividends to minimise taxes. Don’t forget to include all of them when making the decision – personal income tax, both employee’s and employer’s NI, corporation tax and dividend tax.

The key figures are:

  • £5,824 = Lower Earnings Limit – minimum to qualify for State Pension and other benefits
  • £8,060 = Primary Threshold – employee’s NI (12%) kicks in
  • £8,112 = Secondary Threshold – employer’s NI (13.8%) kicks in
  • £10,600 = Personal Allowance – basic rate income tax (20%) kicks in
  • £31,786 = higher rate income tax (40%) kicks in

Many company owners choose to pay themselves a salary equal to the Primary or Secondary Threshold, in order to avoid paying NI, and take the rest in dividends. However, if your company is eligible for the Employment Allowance (first £2,000 of employer’s NI free), it could make sense to pay yourself up to the Personal Allowance (£10,600) in salary. Of course, your other income, family situation and other circumstances could alter the figures and must always be considered.

Pension Contributions

Making pension contributions can save you a lot of money in taxes, as long as you stay within your annual allowance, which is £40,000 for the 2015-16 tax year. At the moment, pension contributions are subject to tax relief at your marginal tax rate, which makes them particularly attractive to higher and additional rate taxpayers.

Normally you need to make the contributions before the tax year end (5 April), but this time it is recommended to act before the Budget Statement, which is due on 16 March.

There is high risk that Chancellor George Osborne will announce important changes which may affect the tax relief. The exact outcome is not known, but experts have been speculating about a flat rate replacing the marginal tax rate (this would effectively reduce or eliminate the tax relief for higher and additional rate taxpayers). The Chancellor has also mentioned the idea of cancelling the pension tax relief altogether and using a completely new mechanism for taxing pensions in the future, perhaps similar to ISAs (after-tax money in and tax-free money out).

It is not clear if this will eventually materialise and when any changes would come into effect. However, pension tax relief has clearly been one of the Chancellor’s primary targets in the effort to reduce the deficit and raise tax revenue. In light of the uncertainty, the safest approach is to make pension contributions before 16 March to avoid potential disappointment.

Note that if you didn’t use your full allowance in the three previous tax years, you might still be able to get that money in, on top of this year’s £40,000. The previous three years’ allowances were £50,000, £50,000 and £40,000, respectively. One condition is that your total contribution must not exceed your earned income for the current tax year. Another thing to watch out for is the lifetime allowance (currently £1.25m, but falling to £1m in April), as exceeding that could be costly when you retire.

NISAs

If you have the cash, you should always use your annual NISA allowance to the maximum. A NISA is a tax wrapper which allows you to build savings and investments without incurring taxes on income and capital gains going forward. The allowance is £15,240 for 2015-16 and it is use it or lose it – if you don’t deposit the money by 5 April, this year’s allowance is gone forever. You may also want to use your partner’s and your children’s allowances (£4,080 per child under the so called “Junior ISA”).

If you have existing cash ISA accounts, now is also a good time to review them and check the interest rates. Banks like to lure savers with attractive rates, only to slash them after 12 months or some other period. In such case you may want to transfer the funds elsewhere. There are two things to keep in mind:

  • Always transfer from ISA to another ISA directly. If you do it via your regular bank account, once you have withdrawn the money, it loses the ISA status (and withdrawals do not increase your annual allowance – that will only change the next tax year).
  • Each tax year you can only deposit money to one cash ISA account and one stocks and shares ISA account.

Capital Gains Tax

You can often save on capital gains tax even outside ISAs. There is an annual CGT allowance, which makes the first £11,100 (for 2015-16) of capital gains tax-free. You need to realise these by the tax year end; otherwise the current year’s allowance is lost forever.

Depending on the investments you are holding, whether there are unrealised gains or losses and whether you want to sell any of them, the decisions to make can become quite complicated, but may save you a lot in taxes. A potentially large CGT bill can be reduced (by crystallising losses) or deferred (if you wait with the sale until 6 April). On the other hand, if you are well within your CGT allowance you can crystallise gains to reduce future taxes.

Always keep in mind that tax issues are an integral part of any investment strategy (and tactics), as taxes can affect net return substantially. At the same time, don’t forget to consider transaction costs.

Inheritance Tax

If your estate is likely to exceed the IHT threshold (£325,000 for individuals or £650,000 for couples), you may want to take steps to reduce it. Estate planning can obviously become very complex, but the easiest thing you can do is make gifts to your beneficiaries. These are subject to annual allowance of £3,000. If you didn’t use the allowance last year, it can still be used now (making it £6,000 in total), but after the tax year end it is lost. As long as you live for seven years after the gift, it is out of your estate.

Other Considerations

The above are the most common points which apply to most people. Depending on your circumstances, there may be other opportunities, further allowances and other things to do before the tax year end. In any case, it is best to discuss your entire financial and tax position with your adviser, as some actions might have unexpected consequences. Don’t forget the key date is 5 April, with the exception of pension contributions where it is safer to act before 16 March this year. Also remember that some actions will require longer time to process and don’t leave everything to the last days.

 

 

 

 

Bear Market Coming? Stick with Your Strategy

Following a multi-year rally, 2015 wasn’t particularly successful in the global markets and, so far, the start of the new year hasn’t been any good either. The UK’s FTSE 100 index is below 6,000, lowest in more than three years. It’s times like this when various doomsday predictions start to appear, warning against events “worse than 2008”, using words such as “crash” and “meltdown”, and pointing to factors such as rising interest rates, growing political tensions, China, rising commodity prices, falling commodity prices and many others.
The truth is that no one really knows what is going to happen. Not the TV pundits, not the highly paid bank strategists and stock analysts, not even the Prime Minister or the Bank of England Governor.
That said, when you have significant part of your retirement pot invested, it is natural to feel uneasy when you hear such predictions, especially if they come from an analyst who got it right last time and correctly predicted some previous market event (he was lucky).
When the markets actually decline and you see your portfolio shrinking in real time, the concerns may become unbearable. Fear and greed get in charge, both at the same time. It is tempting to think about selling here and buying the stocks back when they are 20% lower a few months from now. Easy money, so it would seem. Nevertheless, that would be speculating, not investing. The problem with the financial industry (and the media) is that these two are confused all the time.
Time in the Market, Not Timing the Market
While some people have made money speculating, academic research as well as experiences of millions of investors have shown that it is a poor way to save for retirement. When a large number of people take different actions in the markets, some of them will be lucky and get it right purely due to statistics (luck). However, it is extremely difficult to repeat such success and consistently predict the market’s direction with any accuracy.
In the long run, the single thing which has the greatest effect on your return is time, not your ability to pick tops and bottoms. The longer you stay invested in the market, the more your wealth will grow. You just need the patience and ability to withstand the periods when markets fall, because eventually they will recover and exceed their previous highs.
Time Horizon and Risk Tolerance
The key decision to make is your risk tolerance – how volatile you allow your portfolio to be, which will determine your asset allocation. While personality and other personal specifics come into play, the main factor to determine your risk tolerance is your investment horizon. The longer it is, the more risk you can afford and the more volatility your portfolio can sustain. If you are in your 40’s and unlikely to need the money in the next 20 years, you should have most of your retirement pot in equities. If you are older and closer to retirement, your portfolio should probably be more conservative, because you might not have the time to wait until the markets recover from a possible crash. It is important to get the risk tolerance and the asset allocation right (an adviser can help with that) and stick with it.
How to Protect Your Portfolio from Yourself
Because the above is easier said than done, here are a few practical tips how to protect your retirement pot from your emotions and trading temptations:
1. Have a written, long-term investment plan. It is human nature to consider written rules somehow harder to break than those you just keep in your head. It is even better if you involve your adviser to help you create the plan. Not only is an adviser better qualified and more experienced in the investment process, but another person knowing your rules makes them even harder to break.
2. Do not check fund prices and the value of your portfolio every day. This doesn’t mean that you shouldn’t review your investments regularly. But the key is to make these revisions planned and controlled, rather than emotion-based. You will be less likely to make impulsive decisions, which more often than not are losing decisions.
3. Maintain an adequate cash reserve. This should be enough to meet any planned short-term expenditure and also provide a reserve for unexpected expenses. It will help you avoid the need to encash investments at a time when investment values are low.

Would you like to discuss this article with an adviser?

Who would predict the price of oil?

The price of crude oil has fallen around 40 per cent since a recent peak in June this year. This has a profound effect on economies and markets around the world as the cost of manufacturing and transporting goods falls along with oil producers’ income and the currencies of oil-rich countries.
The theory goes that consumer spending will rise because people have more disposable income; that inflation will fall as the price of goods eases; and that companies with high energy bills will become more profitable. If lower prices hold, the effect might become political and environmental as the balance of world power shifts from oil exporters to oil importers, and the impetus to develop cheaper clean energy wanes. Oil seeps so deep into the global economy you might think that to be a successful investor you need to have an accurate view on its price and its impact on asset prices. But you would be wrong.

No-one with an opinion about oil knows whether their view is right or wrong, and only the changing price will confirm which they are. Market prices are a fair reflection of the balance of opinion because they are created by many buyers and sellers agreeing on individual transactions. As an investor you can take a view of whether that balance – that price – is right but, like all other people with an opinion, you have no way of knowing whether you are right or wrong until the price moves.

Knowing this, it seems irrational to take a view (or a risk) on something so random as the direction of the oil price. In fact, why would one take a view on anything related to the changing price of oil; the US economy, for example; or the price of Shell; or Deutsche Post; or anything else?
The rational approach is to let capital markets run their course and to have a sufficiently diversified portfolio that allows you to relax in the knowledge that, over time, you will benefit from the wealth-generating power of your investments as a whole; without risking your wealth on a prediction that might go one way or the other.